You're Caught in the Middle of These Power Struggles

Old-school utilities and auto dealers, with the help of several state legislatures, are fighting tooth and nail to defend the structure of a fading system, hoping this strategy will somehow save them from obsolescence. PG&E, Southern California Edison, and the National Automobile Dealers Association are underhandedly trying to prevent Tesla (NASDAQ: TSLA) and SolarCity (NASDAQ: SCTY) from helping us to solve our energy problems. Clinging to a bygone era is hardly a winning business strategy, and stands in stark contrast to NRG Energy's (NYSE: NRG) efforts to participate in the transformation of our energy economy.

Source: Túrelio, Wikimedia Commons.

Utilities' work slowdownSolarCity said this week that some utilities are deliberately inhibiting the rollout of the company's home battery-pack systems by charging prohibitive fees for grid-connection applications, and delaying those connections so thoroughly as to effectively shut down the process. SolarCity has installed battery packs in more than 100 California homes, each pack linked to rooftop solar panels. Tesla makes the associated lithium-ion batteries, which store electricity from the panels during the day for use at night. This type of innovation literally has the potential to revolutionize our energy system.

The Rocky Mountain Institute recently published a report predicting that the combination of solar roofs and energy storage could enable mass defection from the U.S. grid by 2030, eroding utilities' customer base and revenues. Confronted with this existential challenge, some utilities are doing everything they can to block development of a new energy paradigm.

They say they're not, of course. San Diego Gas & Electric told Business Week that there is "an ambiguity in the existing tariff language" regarding storage, and that the company is working with regulators to determine the appropriate fees for connecting systems like SolarCity's battery packs.

Compare that with NRG Energy's aggressive strategy to kill its own legacy paradigm and emerge as a leader in a completely new energy economy. NRG is developing the Beacon 10 in direct competition with SolarCity's battery-pack systems. The Beacon 10 combines a 5-kilowatt photovoltaic solar-panel system with a natural-gas burning, hot-air generator. The system can generate 10 kilowatts of electricity and, importantly, can generate power when the sun isn't shining. Considering that NRG is an established company with a solid distribution network, it could pose a meaningful threat to SolarCity on the modern playing field, rather than trying to drag everyone back into the 20th century.

Source: Cytec, Wikimedia Commons.

The car cabalMeanwhile, Tesla is also running into more roadblocks on another front. The company faces numerous state-level challenges to the legality of its direct-sales approach. Here again, we have an entrenched set of interests defending an anachronistic system that no longer supports the needs of the modern world. The states are hitting Tesla with antiquated dealership laws, and because of the strong influence of auto dealer interests like the National Automobile Dealers Association, some lawmakers are doubling down.

Franchising rules originally evolved to prevent manufacturers from expropriating dealers and vice versa, thereby ostensibly protecting the consumer. Politics inevitably intruded as the automotive industry grew. Auto sales account for some 20% of many states' sales taxes, and auto dealers are big employers, so when a battle erupted in state legislatures, the auto dealers won out over manufacturers. Laws became increasingly biased toward dealers, leading to higher prices for consumers. Indeed, one study found that car prices rose by 6% as a result of these franchise laws.

"Auto dealers have a fundamental conflict of interest between promoting gasoline cars, which constitute virtually all of their revenue, and electric cars, which constitute virtually none," wrote Elon Musk, Tesla's founder, on the company's blog recently.

The inexorable march of progress I won't minimize the uphill battle that Tesla faces here, or that SolarCity faces against the recalcitrant utilities. Still, when it comes down to dinosaurs against robots -- the stubborn past against the agile future -- I'm always going to put my money on the disruptors. The old ways will die hard, no question, but they will be forced to yield eventually.

The simple fact is that we cannot continue to meet our growing population's energy and transportation demands under the old paradigm. We have an imperative to dramatically reduce our dependence on fossil fuels, and Tesla, SolarCity, and NRG are all working hard to be a part of the solution. That's a winning strategy if ever there was one.

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